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12/28/2010 @ 11:20AM76,941 views

Double-Dip In Housing Almost Here, According To Case-Shiller Index

Housing markets have taken a turn for the worse, with the widely followed S&P/Case-Shiller index declining more than analysts had forecast in October, lending credence to the housing bears who have predicted a double dip.

The real-estate sector has been one of the sticking points in the Fed and the government’s attempts to revive the U.S. economy. The 20-city composite S&P/Case-Shiller Index, which measures the value of single homes in 20 metropolitan areas, declined 1% from September to October on a seasonally adjusted basis, S&P said Tuesday. That exceeded the 0.8% dip expected by Wall Street analysts. The index, which takes January 2000 as its base with a value of 100, hit 145.32, making October the fifth consecutive month where annual growth rates moderated from their prior month’s pace.

“The double dip is almost here,” said David Blitzer, chairman of S&P’s index committee.“There is no good news in October’s report.” Explaining that “the trends we have seen over the past few months have not changed,” Blitzer cited expired tax incentives and a “lackluster” national economy as some of the causes. “On a year-over-year basis, sales are down more than 25% and the month’s supply of unsold homes is about 50% above where it was during the same months of last year.”

Atlanta and Minneapolis suffered the steepest drops, with seasonally adjusted falls of 2.1% and 1.8% respectively. Denver and Washington were the only metropolitan regions to show sequential price gains on a seasonally adjusted basis, gaining 0.3% and 0.1% respectively. Excluding seasonal corrections, all 20 areas showed declines.

Stalled foreclosures waiting to hit the market will put additional downward pressure on prices, according to Westwood Capital. “The market has still not completed the price discovery necessary to determine the final value of housing – after all, easy money policy is still producing affordability that has masked the failure of prices to completely readjust to normalized levels,” Westwood said in a research note. “The most striking thing about [Tuesday’s] report is that we are seeing a repeat of the price decline patterns that appeared during the 2006-2009 downturn,” pointing to declines starting in “sand state” markets and gradually spreading to the balance of the remaining markets, according to Westwood’s managing partner, Daniel Alpert.

The 20-city index is still 4.4% above its April ’09 trough, but remains 29.6% down from its July 2006 peak. Ben Bernanke and the Federal Reserve have pledged to do whatever is in their power to help the economic recovery. In the FOMC’s last meeting of the year, held on December 14, the committee pledged to continue its policy of quantitative easing by purchasing long and medium-term Treasuries, in order to keep interest rates low and stimulate risk appetite. Housing bears abound, though, such as Nouriel Roubini, who predicted a double-dip in housing early in December, claiming problems could even spread to the “prime” market. (See Dr. Doom Bullish On Housing? Roubini Buys a $5.5 million Manhattan Condo).

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If it should turn out that there is, in fact, a generational housing bubble, the recent decline in the value of housing will seem miniscule by comparison and the second “double dip” will turn out to be far more protracted than we think.

Why not bail out homeowners that were sold High Up- rate ARM’s, instead of bailing out the Wall Street Swindlers? Bill Price PS: I just saw where Wall Street 3rd Q profits were highest in history – up $33bil. Seems borrowing from FED and Lending to Treasury ( with the taxpayers paying the spread ) is good business.. So much for FinRef.

The data analyzed to assess the state of the economy is misleading. The stock market reflects accrued capital moved about by institutional investors such as investment and pension funds, who are under pressure to show a profit to motivate continued participation by investment funds and to provide support for pensioners. The proportionate participation of individual investors is minimal and so does not indicate the situation of the general public and economy in terms of available funds or optimism.

Capitalism maximizes the utility of self-assembly with the individual motivated to produce through both creativity enabled by the system, and the willingness to invest work hours for perceived personal enrichment. With self-assembly, eventually the system enters a state of disequilibrium and cyclical adjustments occur.

There have been dislocations in real property markets for decades. Some fifty years ago, there were square miles of worthless industrial property in St. Louis. This was an indicator of the local economy at that time. The real property market is a much better indicator of the state of the economy than the stock market. it indicates available personal capital and the ability of lenders to participate with a prospect of loans being serviced. Industrial and commercial property use indicates the state of the economy as users engage such property for active business activity.

The growing inventory of residential property in arrears is a measure of the doldrums of the economy. This situation occurred due to an unfortunate confluence of circumstances including a coincidental imbalance in the business cycle coupled with pressure exerted by the political sector encouraging improvident loans, an undertaking in which the alert entrepreneurial lenders quickly capitalized to their advantage, resulting in artificial inflation of housing costs far beyond their actual “value.” Defaults in loans disclosed the fact that the “value” of the property did not support the cost.

Unfortunately, we have an economy where true unemployment is estimated at in excess of 20% with the viability of skills of the unemployed declining. The magnitude of the unemployment and its duration result in reduced domestic product availability. So there are fewer goods and services to be distributed, and there is less utilization of such resources as medical service.

In a complex economy, it is necessary both on the basis of humane considerations and to avoid disruption by adversely affected elements, to provide support for those unemployed and unproductive. This diversion of goods and services is being accomplished largely through use of the government as a vehicle for distribution of funds. Because of reduced production, there is less product for more people.

Our unwillingness to acknowledge the scope of the malaise and the use of covert mechanisms results in debasement of the currency as inflation reduces the need for more immediately apparent political action. The use of circumlocution in addressing the problems, obviates current widespread public realization of the cost of failure to employment our human resources.

We are not now fully utilizing our scientifically and technologically educated resources. But the future is more foreboding as disproportionate growth of demographic groups that are not as likely to be as well-trained relegate the U.S. to function with less than the normative proportion of a population that able to utilize first world technology that typifies countries currently in expansive growth modes.

Of course, there are subtexts such as energy availability and cost, and suggested increased philanthropic disposition of our national assets under cap and trade and other policies designed to enrich third world economies at our expense, that will further diminish what we have available to support the U.S. population. This largess will delay our ability to utilize idle housing resources.

There is a viable solution to utilization of housing resources that are now deteriorating. Energy inputs into the system are necessary to overcome the entropy. But I have been too verbose, so that is for another time, or I may essay the undertaking personally on an entrepreneurial basis.

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It’s important for politicians to prevent a second “burst” to the housing bubble. They have twice experienced the results of bad economic news and election outcomes.

The solution is allowing the private sector to quickly create jobs. With jobs millions of consumers will qualify to buy homes. Jobs can be created through deregulation, business tax cuts, and rewarding companies that bring outsourced jobs back to the United States.

1. Many of the millions of unemployed are capable of maintaining mortgage payments, but have had their credit damaged by unemployment. A sub prime exception should be made for them based on education and earnings potential based on their career path. The government can subsidize educational opportunities.

2. Create a grandfather clause allowing children who are primary caregivers to assume the mortgages and reverse mortgages from parents’ estates.

3. Allow heirs to family farms to pay a minimal inheritance tax over a long period of time (20 to 25 years). Their ability to maintain the farms means not only their jobs are retained, but so are the millions of seasonal jobs family farms create.

4. Sub prime loans for small business entrepreneurs: many small businesses would expand and hire more employees if they could get a loan. The problem is their credit was damaged by the recession. Businesses know how to make money and create jobs through expansion. By developing and showing banks good business plans they should qualify for a loan.

A second housing bubble would likely bring government austerity measures as we’ve seen in Greece, and deep cuts to entitlement programs. Both can be prevented by quickly and dramatically stimulating the private sector.

Politicians need to do what they have to do to prevent a second housing bubble.

And, there’s nothing better than a booming economy to improve the housing market.

Lets see…if the government created a massive no-money-down/everybody-qualifies credit subsidy for anyone who might like to buy a Jaguar automobile, there would be a whole raft of people driving Jaguars for a while until the reality of the monthly payments hit home. Then there would be a glut of used Jaguars on the market and very few people left who hadn’t already tried and been burned by the Jaguar program. The price of Jags would tank. The damage cant be undone by loaning more people more money. People are not going to buy houses at those bogus prices again. The Bankruptcy cram down proposal would have shifted the losses to the lenders who pumped up the market in the first place. The Obama social programs shift the losses to the U.S. Treasury. What a mess.

[...] go to reach the February 2007 highs. A more precise indicator, well at least in my eyes, is the S&P/Case-Shiller Index. This index is a 20 city index that measures single home values which people watch to better [...]

[...] 4th article in the Boulder County Business Report reinforces forecasts from last fall (see article in Forbes) that in spite of an improved economy overall housing has its continued challenges. On the bright [...]

[...] 4th article in the Boulder County Business Report reinforces forecasts from last fall (see article in Forbes) that in spite of an improved economy overall housing has its continued challenges. On the bright [...]

Engaging and well written article! This tops anything I have read lately on the subject at hand. I wonder if this’ll be posted on Twenty-First Tycoon. Although the site has awesome political, business, technology and real estate news, they could use more stuff like this…

When we were ‘surprised’ by the initial bust in the housing market, there were many professionals looking for ways to pressure lenders to modify loans, etc – a futile effort at the time and much bettter today, but not quite there.

If everyone is believing in another wave of foreclosures and we belive that will be terrible for many local markets, then something should be done.

When Bernanke sugests the Fed will “do everything in its power” then he should consider finding ways to pressure the lenders to share the risk of modification/refinancing with the lenders and the federal government.

Something like this: 1) Refinance existing homeowners at today’s rates with a mortgage payment they qualify for at current documented income levels; 2) SHARE a “soft second” with the original lender, The Fed and the Federal Government splitting any potential loss equally 3) Existing owner to repay the second mortgage upon sale, transfer or refinance 4) FORGIVE the soft second IF they stay current on the new 1st mortgage and IF they STAY in the home for 10 years 5) Lower reserve requirements for lenders who particiate and also ORIGINATE new loans.

I believe these four steps would do more to stabilize housing than anything else we could do. It will:

1) Reduce foreclosure inventory 2) Keep people in their homes with incentives to STAY there 3) Less foreclosures and lower inventory will lead to stabilzed housing prices 4) Lower reserve requirements and lower losses for lenders will lead to MORE lending

I realize there are many who do not qualify for such a program but I believe there are enough people who do and who are motivated to accept such an offer that it will free up resources to help those who simply cannot qualify for this and thus will further stabilize the markets by getting lenders and buyers back in the game.